The increased transition to natural gas in heating and electricity generation around the world will continue to drive liquefied natural gas (LNG) demand growth for years to come, analysts say.
The first wave of LNG projects, whose construction started a decade ago, are now operational, but major oil and gas companies already plan and sanction new projects for the next few years, creating the second LNG supply boom.
Experts expect this year to become a record year for final investment decisions (FID) on new LNG projects, the biggest year yet in terms of LNG volumes of projects given the go-ahead, and the biggest year for LNG greenfield investment.
A number of projects have already been approved this year or have reached significant milestones on their path to securing final investment decisions.
As the second wave of LNG supply is about to hit the market in a few years, analysts warn that the industry should avoid cost overruns, for which the first wave of LNG projects became notorious.
The next LNG project boom is set to benefit engineering, procurement and construction (EPC) contractors as it is likely to lead to total capital expenditure—including LNG plant and upstream infrastructure—exceeding US$200 billion between 2019 and 2025, Wood Mackenzie said in April this year, noting that the “LNG boom is back.”
This year began with Exxon and Qatar Petroleum reaching a FID in February to proceed with development of the Golden Pass LNG export project in Sabine Pass, Texas, with investment of over US$10 billion.
“By moving ahead now, the partners ensure that Golden Pass will be at the forefront of the second wave of US LNG,” Wood Mackenzie said back then, adding that the project kicks off what could be a record year for LNG final investment decisions.
This year is likely to set a record for the number of new project approvals, Michael Stoppard, Vice President and Chief Strategist for Global Gas at IHS Markit, said in March. “The projects first out of the gates seem likely to serve as a “firing pistol” to initiate a new phase of development,” he said, noting that IHS Markit sees LNG demand rising from 320 million tons (mt) in 2018 to 465 mt by the mid-2020s, and exceeding 630 mt by the mid-2030s.
Last month, FIDs continued with Anadarko announcing the FID for the Area 1 Mozambique LNG project, the country’s first onshore LNG development which will initially consist of two LNG trains with total nameplate capacity of 12.88 million tons per annum (mtpa).
Area 1 Mozambique LNG, as well as Mozambique’s Area 4 project, expected to be given the FID by Exxon later this year, would make Africa the leader in LNG greenfield investment this year, with 28 percent of all approved investments in newly sanctioned projects, Rystad Energy says.
Area 1 is the third largest LNG project in terms of greenfield investment this year. The leaders will be Russia’s Arctic LNG and Qatargas LNG—both of which are yet to take FID. According to Rystad Energy estimates, Arctic LNG and Qatargas LNG will have capital investment of US$25.75 billion and US$17.5 billion, respectively.
Earlier this month, Novatek, the proponent of Arctic LNG in Russia, said it had formed the structure of the project’s participants, allowing it to make the FID, expected later this year.
Douglas J. Pferdehirt, chairman and CEO at TechnipFMC, said on the company’s Q2 earnings calllast week, commenting on LNG projects:
“Over the last 18 months, there has been considerable market focus on the LNG wave. The LNG market growth continues to be underpinned by the structural shift toward natural gas as an energy transition fuel, helping to meet the increasing demand for energy while lowering greenhouse gases.”
One major concern among analysts about the new wave of LNG projects is the fear that the industry could repeat the cost overruns and delays from the first wave of the LNG plants, Simon Flowers, Chief Analyst and Chairman for Wood Mackenzie, said in May.
In the previous LNG investment boom, cost overruns averaged 33 percent, while Australian projects saw costs above budgets at 40 percent, Giles Farrer, Research Director, Global Gas and LNG Supply at Wood Mackenzie, wrote in April.
“While Wood Mackenzie does not expect similar increases this time, the potential for operators and contractors to drop the ball on project delivery remains. This risk will only be heightened if more projects go ahead than our base case forecast,” Farrer said.